India’s shares were flat, while bonds gained slightly despite data showing weaker-than-expected economic growth, with investors still betting the economy will improve.
This reaction followed data out late on Wednesday showing India was no longer the world’s fastest-growing major economy after posting gross domestic product (GDP) growth of 6.1 percent in January-March from a year earlier, well below expectations for 7.1 percent and China’s 6.9 percent annual expansion in the first quarter.
Analysts expect the Reserve Bank of India (RBI) to hold its policy repo rate at 6.25 percent on June 7 and issue a less hawkish statement than at its last meeting.
The change in tone is expected given recent data showing consumer inflation easing to 2.99 percent in April – well below its target of 4 percent – though markets are still braced for a potential surprise.
Meanwhile, economic growth in the last quarter was seen likely to have been hit by the government ban on high-denomination banknotes imposed in November. The economy is, however, still expected to post stronger economic growth going forward, a view that spurred Indian shares to record highs last month.
“Markets expect the next quarter to be very good,” said Vinod Nair, Head of Research at Geojit Financial Services. “It will be a big surprise if RBI cuts rates now,” he added. “RBI will take some more time as they are also concerned about inflation and how much further the note-ban impact will continue.”